A Study On Investor Attention,Asset Pricing And Market Efficiency

Lots of market anomalies emerge under the Arrow-Debru neoclassical theoretical framework, which spurs researchers to construct a new financial theory system based on the new premises, namely limited rational investor and non-efficient market. And owning to this big trend the study of investor attention made a substantial developmentBased on above background, this article makes systematic summarization for investor attention theory, and found that most studies focus on the issue that how investor attention effect on pricing, few studies investigate the impact of investor attention on market efficiency. Meanwhile, investor attention is entwined with market efficiency, which urges us to reconsider the relation among them. So after theoretical analysis, we find there exists two kinds of impact mechanisms including forward influence mechanism(forward mediation effect) and backward influence mechanism(backward moderation effect).Then the focus of this article is to further demonstrate the impact mechanism through empirical analysis.Firstly, we pay attention to the forward impact mechanism. And using price synchronicity as breakthrough point we priorly examines the he effect of investor attention on information diffusion. Through the U shape relationship between company size and price synchronicity we prove that price synchronicity should have negative correlation with the degree of firm specific information diffusion. This means that the higher degree of information diffusion, the lower price synchronicity would be. Given on the basis, our further research shows that investor attention can decrease the stock price synchronicity, namely can improve the degree of information diffusion. Meanwhile, the results also reveal that there has a negative relationship between analyst coverage and stock synchronicity, and this relationship can be strengthened by investor attention. All of this analysis unveils that investor attention can accelerate the proliferation of corporate-level information. Nevertheless, the fact that information diffusion is a conductive media makes us to further study the direct effect of investor attention on market efficiency. Referring to method of Efendi et al(2014), we adopt drift degree of post-earning-announcement as a verse proxy indicators of market pricing efficiency. Based on this, we found that the stocks with more attention, their immediate return will become more sensible and their drift degree will become smaller. This proves that investor attention can promote the market efficiency. In the article we further distinguish the market state and study whether the market state can impact above relation, but the results shows market state’s influence isn’t significant. In general, the above studies basically show the frame of forward influence mechanism, namely investor attention will systematically improve market efficiency by accelerating the information diffusion and the enhancement of pricing efficiency.On the other hand, this article also investigates the backward influence mechanism from time dimensions, namely we study the short-term and long-term relation between investor attention and asset pricing will be subject to what kinds of impact from market efficiency. First of all, we utilize the 15-minute level search data crawled from HeXun website to measure investor’s attention of stock in market closed time. And then we discuss the effect of investor attention on overnight return including OR(overnight open return) and AOR(abnormal overnight return). The result shows that investor attention will push OR and AOR up, at the same time, the arbitrage constraints and Monday effect will reinforce this pricing errors between investor attention and overnight return. Besides, we use Panel VAR model to study the dynamic relation between them, the results suggest that the positive effect of investor attention on overnight return will disappear after 12 trading day, and this disappearing rate of latter sample is faster than former sample. That is to say, as time goes on the abnormal overnight return caused by investor attention will be revised at a faster speed. During robustness test we use the investor comments grabbed from XueQiu website as investor attention indictor, and we find the regression results are robust. Furthermore, we also apply difference GMM to control endogenous, and the results indicate that the relation between investor attention and overnight return is still robust. Beyond above analysis, this article also investigates the long-term dynamic effect of investor attention on asset pricing under backward influence mechanism. Firstly, The full-sample bootstrap-LR test suggests the existence of a unidirectional causality running from market return to investor attention. Whereas, the parameters stability tests unveil that both the short-run and the long-run relationships between investor attention and market return estimated by full-sample data are unstable over the sample period, which in turn suggests the results of full-sample causality tests are unreliable. Thereby, we have to apply bootstrap rolling window estimation to revisit the dynamic causal relationship between the two variables. The results indicate that investor attention has a significant effect on market return among some sub-samples, but over time such causality connection becomes weak. While market return has a great impact on investor attention in the rolling-window model, which is similar to the full-sample tests. Meanwhile, we average the estimated coefficient of VAR model of all sub-samples to measure the mutual impact degree between investor attention and market return. The results confirm that the effect on market return by investor attention is negative, namely, high investor attention will lead to low market return. And market return has a significant positive effect on investor attention. At last, we adopt Hurst index to analyze the possible reasons behind the change of dynamical relationships between investor attention and market return. We find that it is the improvement of market efficiency that cripples the negative influence of investor attention on market return, meanwhile, with the volatility of the A-share market falling, the positive effect of market return on investor attention is also fading. Now that the backward influence mechanism has been fully sketched, specifically, it embodied itself in revised speed of overnight pricing error caused by investor attention in closed time, and also in the long-term causality connection of investor attention and market return.Finally, based on two kinds of effects of investor attention, this article posts the proposals respectively for investors, listed companies and regulators. And we also make a reasonable prospect of the development in this area form the following perspectives:effect of institutional investors attention, attention heterogeneity and precise measurement of attention.